Professional financial advice: when expert advice pays off and for whom

Reading Time: 10 minutes

Over 90 percent of all people want to lead a self-determined life. Personal pension planning is the key to maintaining the quality of life they are accustomed to in retirement. This applies not only to wealthy Swiss people, but to all income brackets.

In order to achieve personal goals and ensure financial security, sound financial advice is crucial at certain stages of life. So what events call for expert advice? What are the advantages of individual financial advice and what should I look out for when searching for the right expert? This article provides some initial guidance.

The most important facts in brief

• The course for wealth accumulation is set at certain stages of life
• The title of financial advisor is not protected – this makes selection difficult
• Professional financial advice is tailored to your personal situation
• Sound expert advice is not available for free
• Professional financial advice is followed by equally professional wealth management

Expert advice is particularly important in certain phases of life

Private financial planning has become very complex due to volatile markets. In certain phases of life, it is particularly important to plan your finances with foresight and sound advice.

• Entry into professional life: In addition to planning budgets, the first thing to do here is to create a reserve for unforeseen events. Furthermore, the possibilities of the three pillars of Swiss pension provision should be known and utilized.
• Professional career: Solid asset accumulation requires time. Investment strategies must be adapted to changes in income. With higher incomes, the issue of tax optimization also becomes more important.
• Starting a family: In addition to your own, you now need to plan for the protection of all family members. This includes life insurance and disability insurance. The children’s education also needs to be taken into account.
• Home ownership: Are you looking to buy your own property? Financing involves high and long-term liabilities. Once affordability has been checked, the financing concept determines how much the property will ultimately cost.
• Retirement provision: Only those who use the time until retirement efficiently will achieve the goal of financial independence in old age. This includes, for example, making optimum use of the opportunities offered by pillar 3a of the Swiss pension system.
• Retirement: Perfect asset management ensures a reliable income stream in retirement.
• Asset transfer: If necessary, optimal inheritance planning is part of comprehensive wealth management. Last but not least, this minimizes any inheritance tax.
• Divorce : Separation is one of life’s unpredictable events. It is therefore difficult to make sensible arrangements for all financial matters without outside help. In Switzerland, the division of assets normally applies, according to which the assets acquired during the marriage are divided. Pension fund contributions saved during the marriage are also divided. Furthermore, the issues of debts, insurance and inheritance law must be clarified. Overall, the financial situation needs to be completely reassessed and replanned.

What you should look out for when choosing your investment advice

Despite the serious effects of the 2008 financial crisis, the financial literacy of Europeans has hardly improved since then. According to a 2017 study by Allianz Insurance, the Swiss are among the leaders, but there are major gaps, particularly when it comes to assessing risks.

Animportant result: the efficiency of financial decisions increases with knowledge about investments and their risks. This means that qualified advice pays off. Choosing the right financial advisor is therefore vital.

Recognized educational qualification of the financial advisor as a minimum requirement

As the title of financial advisor is not protected in Switzerland, as in many other countries, customers should look out for recognized educational qualifications of their potential advisors. These are for example

• Diploma Financial Advisor IAF
• Financial planner with federal certificate
• MAS Financial Consultant

In addition to theoretical training, the advisor should of course have sufficiently proven their qualifications in practice. After all, experience in the financial sector is an important indicator of the advisor’s ability to deal with different market situations and develop individual strategies.

When selecting a suitable financial advisor, also pay attention to the following criteria:

• Independence: an independent advisor can provide objective recommendations as they are not tied to specific financial products or product providers.
• Transparency of fees: Clarify how the financial advisor is remunerated. Transparent fee structures help to avoid conflicts of interest.
• Personal advice: The advisor should respond to your individual needs and goals and offer tailor-made solutions.
• References and reputation: Find out about other clients’ experiences with the advisor and research their reputation in the industry.
• Clear communication: A competent advisor will be able to explain complex issues in a simple and understandable way so that you can make informed decisions.
• Regular review: The advisor should offer regular reviews of your portfolio to ensure that your investments continue to meet your objectives.

You should always be suspicious if the advisor makes contact with potential clients without prior inquiry. If no witnesses are allowed during the consultation, if no information is provided about possible risks, if a savings instrument is formally imposed or if blank forms are to be signed, these are signs of dubious financial advice.

Financial advice is organized differently

In Switzerland, there are various types of financial advisory services that help people plan and manage their finances. The main types are

Independent financial advisors

Independent financial advisors offer financial services and financial products from various providers. They act in the interests of their clients and are not tied to specific products or companies. They receive their remuneration either in the form of fee-based advice from clients or as commission from the product providers. As advisors normally only focus on a limited selection of product providers, customers should not take the terms independent and free too literally.

Banks and financial institutions

Banks and financial institutions also offer financial advisory services. These range from asset management and pension provision to financial advice. Customers should note that the advice may not always be independent. Alternatively, some banks offer investment advice on a fee basis.

Asset management

Asset managers offer professional asset management services. They analyze the financial situation of their clients, develop investment strategies, select investment products and continuously monitor the performance of the portfolio. Today, professional asset management is no longer reserved for very wealthy clients. Innovative start-ups have now made competent asset management accessible to a broad customer base using digital financial tools. With Everon, for example, it is possible to get started with assets as low as CHF 50,000.

Tax advice

Tax advisors offer their clients advice on optimizing their tax situation. They help them to minimize their tax burden by applying legal tax-saving strategies.

Insurance

Insurance advisors help clients find the right insurance cover for their needs. They analyze risks, recommend suitable insurance products and assist with claims handling in the event of an insurance claim. They therefore generally only cover part of their customers’ financial situation.

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The process of professional financial advice

Before you seek advice, document your financial situation in detail. This includes bank statements, information on pension accounts, investment dispositions and details of mortgages and insurance policies.

Also determine what financial and personal goals you would like to achieve and try to plan a timeframe for achieving them.

Comprehensive financial advice usually includes the following steps:

• Taking stock of the personal situation: the advisor prepares a comprehensive analysis of the client’s financial situation, including income, expenses, existing assets, debts and insurance.
• Definition of goals: The advisor talks to the client in detail about their financial goals, needs and investment objectives.
• Risk analysis: This involves determining how much risk the client is prepared to take in order to take this into account in the investment strategy.
• Financial analysis: The financial advisor prepares a personal analysis based on the parameters determined.
• Investment recommendation: Based on the information from the previous steps, the advisor will propose an investment strategy to the client that is tailored to their individual goals and risk tolerance. Depending on the structure of the investment advice, the investment strategy may already contain specific product recommendations.

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Different remuneration models in investment advice

Remuneration models can essentially be divided into two main categories: commission-based and fee-based financial advice.

• Commission-based financial advice: In this case, the advisor refinances his services via commissions for brokered financial products. This can lead to a conflict of interest if the broker favors products with high commissions. Specific disclosure of the calculated costs (commissions) contributes to the necessary transparency.
• Fee on assets under management: If the advisor also takes on the subsequent asset management, remuneration is often based on a percentage fee of the assets. This averages around one percent and is known as a management fee.
• Fee-based advice: Here, the advisor is paid directly by the client for their services. This model can be financially worthwhile for very wealthy investors, as it offers a transparent cost structure and can reduce conflicts of interest. Unless flat rates are agreed, hourly rates of around CHF 200 are common.

When weighing up the costs and benefits, investors should consider the cost of the advice in relation to the quality of the service and the expected return.

Important: The development of private assets is largely dependent on the efficiency of the investment advice and ongoing asset management. If, for example, the possibilities of pillar 3a and the tax structuring options are used optimally, this can ultimately pay off more than any fee costs and asset management fees saved.

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No financial planning without sound risk management

Risk management is an indispensable part of financial planning. It aims to identify potential risks, assess them and develop measures to reduce or eliminate them. This helps to minimize financial losses, protect the capital base and ensure long-term financial success.

Financial advisors can provide valuable support in identifying and implementing risk management strategies. They have the expertise and experience to identify, assess and prioritize risks. They can also propose customized solutions that are tailored to the client’s specific needs and objectives.

Key elements of risk management strategies include

• Diversification: one of the most basic risk mitigation strategies is to diversify the portfolio to spread risk and minimize the impact of market fluctuations.
• Insurance: The use of insurance to cover specific risks, such as occupational disability, invalidity or death, can help to limit financial losses in the event of a claim.
• Emergency fund: Setting up an emergency fund ensures that unforeseen expenses or loss of income can be managed without having to fall back on long-term savings targets or investments.
• Regular review and adjustment: Financial markets and personal circumstances are constantly changing. Regular review and adjustment of risk management strategies is therefore essential to ensure that they continue to meet needs and objectives.

Risk management is an integral part of financial planning that not only serves to minimize potential financial losses, but also helps to achieve financial goals. The support of experienced financial advisors is extremely valuable in developing and implementing effective risk management strategies.

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From financial advice to wealth management

Investment advice and asset management are two services that differ in terms of responsibility and scope of service. These differences have an impact on the rights, obligations and liability of the service providers.

Investment advice vs. asset management

Investmentadvice offers investment proposals and advice, whereby the decision on the investment ultimately lies with the client . The advisor bears no direct responsibility for the investment decisions and their consequences.

With asset management, on the other hand, the client grants the asset manager a power of attorney to make investment decisions on their behalf and for their account. Once an investment strategy has been defined in the advisory meeting, the asset manager assumes full responsibility for the portfolio and its performance. This includes the selection, purchase and sale of investments based on the agreed strategy.

Liability and responsibility

Liability is complex in the event of “incorrect advice” in investment advice that leads to losses. In principle, responsibility for the investment decisions made lies with the client, as it is the client who makes the final decisions. However, the advisor can be held liable if there is evidence of incorrect advice or a lack of information. This applies in particular if the advice was not in line with the client’s interests.

In asset management, the asset manager bears a greater responsibility and therefore also a higher liability risk. As the manager makes independent investment decisions, he is directly responsible for the performance of the portfolio. In the event of proven misconduct or mismanagement, the asset manager can be held accountable.

Asset management: implementation of investment advice

Professional financial advice pays off if it is implemented just as professionally. First of all, appropriate financial products must be found for implementation. Once the customer has accepted the corresponding investment recommendations of their advisor, they commission the purchase of investment instruments such as shares, bonds or investment funds. If you have only taken advantage of pure investment advice, you execute the orders yourself or outsource the execution and management to another service provider – an asset management company.

By separating investment advice and asset management, customers avoid potential conflicts of interest between advisors. However, this is often not feasible in practice or is unprofitable in terms of the overall calculation due to the pricing. Performance would suffer too much as a result. Normally, this only pays off for very high assets.

Nevertheless, asset management companies such as Everon prove that there is no need to forego sound investment advice and asset management even for medium-sized assets. Everon uses digital financial tools to manage assets from as little as CHF 50,000 at reasonable fees. The fact that decent returns can be achieved with this approach is demonstrated by the awards received from the business magazine Bilanz in recent years.

Once the personal investment strategy has been implemented, the portfolio is monitored by the asset management company and continuously adjusted to the prevailing market conditions and the client’s objectives. This means that financial advice and asset management also focus on financial security when new life situations arise and recommend or take appropriate measures. Competent asset management companies are characterized by transparent reporting on performance and fees.

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Conclusion

Professional financial advice is essential in certain phases of life to ensure financial goals and security. It is important to choose a qualified and experienced financial advis or who takes the customer’s individual situation and needs into account. When choosing an advisor, customers should look for officially recognized educational qualifications, independence, transparency of fees and references.

Private individuals can find easy-to-understand information on financial topics on the website of the Swiss Financial Market Supervisory Authority (FINMA). FINMA also maintains lists that warn investors of dangers on the financial market.

In addition, a sound risk management strategy is essential to minimize financial losses and ensure long-term success. For middle-income investors, wealth advice and asset management are often provided by a single service provider so that performance is not excessively burdened by fees. Qualified advisors are characterized by transparent reporting and regular portfolio reviews.